x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended November 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number 333-139395

LOCATION BASED TECHNOLOGIES, INC.

(Name of registrant as specified in its charter)

Nevada

20-4854758

(State of incorporation)

(I.R.S. Employer Identification No.)

49 Discovery, Suite 260, Irvine, California 92618

(Address of principal executive offices)

888-600-1044

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. xYes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes oNo

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes xNo

As of January 14, 2012, there were 202,461,691 shares of the registrant’s $.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PAGE

PART I

FINANCIAL INFORMATION

3

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

3

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

Location Based Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended November 30, 2012 and 2011

(Unaudited)

For the three months ended

November 30,

2012

November 30,

2011

Net revenue

Devices

$

127,856

$

41,891

Services

80,699

2,225

Total net revenue

208,555

44,116

Cost of revenue

Devices

105,287

37,454

Services

104,967

42,261

Other

98,786

175,012

Total cost of revenue

309,040

254,727

Gross loss

(100,485

)

(210,611

)

Operating expenses

General and administrative

607,360

448,514

Officer compensation

229,670

135,000

Professional fees

404,928

764,747

Rent

19,527

19,203

Research and development

42,364

356,299

Salaries and wages

150,720

-

Loss on asset impairment

455,916

-

Total operating expenses

1,910,485

1,723,763

Net operating loss

(2,010,970

)

(1,934,374

)

Other income (expense)

Financing costs

(81,000

)

(15,970

)

Amortization of beneficial conversion feature

(61,233

)

-

Amortization of deferred financing costs

(81,966

)

(2,501

)

Loss on change in fair value of derivative liabilities

(1,144,647

)

-

Interest income (expense), net

(44,872

)

(17,109

)

Foreign currency gain (loss), net

(16

)

21

Total other income (expense)

(1,413,734

)

(35,559

)

Net loss before income taxes

(3,424,704

)

(1,969,933

)

Provision for income taxes

800

800

Net Loss

$

(3,425,504

)

$

(1,970,733

)

Basic - Earnings (loss) per share

$

(0.02

)

$

(0.01

)

Basic - Weighted Average Number of Shares Outstanding

199,734,700

191,570,055

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

Location Based Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

For the three months ended November 30, 2012 and 2011

(Unaudited)

For the three months ended

November 30,

2012

November 30,

2011

Net Loss

$

(3,425,504

)

$

(1,970,733

)

Other comprehensive loss:

Foreign currency translation adjustment

(153

)

-

Comprehensive income (loss)

$

(3,425,657

)

$

(1,970,733

)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

Location Based Technologies, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended November 30, 2012 and 2011

(Unaudited)

For the three months ended

November 30,

November 30,

2012

2011

Cash Flows from Operating Activities

Net loss

$

(3,425,504

)

$

(1,970,733

)

Adjustment to reconcile net loss to net cash used in operating activities:

Loss on change in fair value of derivative liabilities

1,144,647

-

Loss on asset impairment

455,916

-

Provision for doubtful accounts and sales returns

(15,875

)

Depreciation and amortization

26,640

47,610

Amortization of beneficial conversion feature

61,233

-

Amortization of prepaid services paid-in common stock

153,125

220,001

Amortization of deferred financing costs

81,966

Common stock issued for services

49,500

-

Warrants issued for services

99,873

-

Stock based compensation

81,855

-

Changes in operating assets and liabilities:

(Increase) decrease in accounts receivable

112,349

(431,165

)

(Increase) decrease in inventory

57,164

(5,015,603

)

(Increase) decrease in prepaid expenses and other assets

(10,664

)

1,417,352

(Increase) decrease in deposits

-

2,748,430

Increase (decrease) in accounts payable and accrued expenses

290,608

129,107

Increase (decrease) in accrued officer compensation

93,950

(3,683

)

Increase (decrease) in deferred revenue

(5,163

)

390,180

Increase (decrease) in accrued interest

28,261

405

Net cash used in operating activities

(720,119

)

(2,468,099

)

Cash Flows from Investing Activities

Purchase of property and equipment

(120,000

)

(216,511

)

Additions to patents and trademarks

-

(5,375

)

Net cash used in investing activities

(120,000

)

(221,886

)

Cash Flows from Financing Activities

Advances / (repayments) from officers, net

-

(9,423

)

Payments for deferred financing costs

(6,000

)

-

Proceeds from convertible notes payable

250,000

-

Proceeds from related party convertible notes payable

350,000

-

Net cash provided by (used in) financing activities

594,000

(9,423

)

Net decrease in cash and cash equivalents

(246,119

)

(2,699,408

)

Cash and cash equivalents, beginning of period

376,554

3,619,576

Cash and cash equivalents, end of period

$

130,435

$

920,168

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company designs, develops, and sells personal, pet, and vehicle locator devices and services including PocketFinder® People, PocketFinder® Pets and PocketFinder® Vehicles. The PocketFinder® is a small, completely wireless, location device that enables a user to locate a person, pet, vehicle or valuable item at any time from almost anywhere using Global Positioning System (“GPS”) and General Packet Radio Service (“GPRS”) technologies. The Company is located in Irvine, California.

Organization

Location Based Technologies, Inc. (formerly known as Springbank Resources, Inc.) (the “Company,” “our,” or “LBT”) was incorporated under the laws of the State of Nevada on April 10, 2006.

Location Based Technologies, Corp. (formerly known as PocketFinder, Inc.) was incorporated under the laws of the State of California on September 16, 2005. On July 7, 2006, it established PocketFinder, LLC (“LLC”), a California Limited Liability Company. On May 29, 2007, PocketFinder, Inc. filed amended articles with the Secretary of State to change its name to Location Based Technologies, Corp.

On September 30, 2009, the Company formed Location Based Technologies, Ltd. (“LBT, Ltd.”), an England and Wales private limited company, to establish a presence in Europe. LBT, Ltd. is a wholly owned subsidiary of the Company.

Consolidation Policy

The accompanying consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiary, Location Based Technologies, Ltd. Intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 8-01 of Regulation S-X. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. However, except as disclosed herein, there has been no material changes in the information disclosed in the notes to financial statements included in the annual report on Form 10-K of Location Based Technologies, Inc. for the year ended August 31, 2012. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended November 30, 2012, are not necessarily indicative of the results that may be expected for any other interim period or the entire year. For further information, these unaudited consolidated financial statements and the related notes should be read in conjunction with the Company’s audited financial statements for the year ended August 31, 2012, included in the Company’s report on Form 10-K/A.

Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has incurred net losses since inception, and as of November 30, 2012, had an accumulated deficit of $48,440,466. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management recognizes that the Company must generate additional resources to enable it to continue operations. Management intends to raise additional financing through debt and equity financing or through other means that it deems necessary, with a view to moving forward and sustaining prolonged growth in its strategy phases. However, no assurance can be given that the Company will be successful in raising additional capital. Further, even if the Company raises additional capital, there can be no assurance that the Company will achieve profitability or positive cash flow. If management is unable to raise additional capital and expected significant revenues do not result in positive cash flow, the Company will not be able to meet its obligations and may have to cease operations.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior period amounts or balances to conform to the presentation adopted in the current period.

Cash and Cash Equivalents

For purposes of the balance sheets and statements of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents.

Concentration of Credit Risk

Cash and Cash Equivalents– The cash and cash equivalent balances at November 30, 2012 and August 31, 2012 were principally held by two institutions which insured our aggregated accounts with the Federal Deposit Insurance Corporation ("FDIC") up to $250,000 per insured banking institution. At times, the Company has maintained bank balances which have exceeded FDIC limits. The Company has not experienced any losses with respect to its cash balances.

Revenue and Accounts Receivable –For the three months ended November 30, 2012, revenue from two of the Company’s largest customers amounted to $43,011 or 21% of total net revenue. Accounts receivable from these customers amounted to $100,957 or 94% of total accounts receivable at November 30, 2012. For the three months ended November 30, 2011, revenue from one of the Company’s customers amounted for $39,941 or 90.5% of total net revenue. Accounts receivable from this customer amounted to $430,121 or 99.8% of total accounts receivable as of November 30, 2011.

The allowance for doubtful accounts on accounts receivable is charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of November 30, 2012 and August 31, 2012 the allowance for doubtful accounts amounted to $304,597 and is related to the LoadRack project.

Allowance for Sales returns

An allowance for sales returns is recorded as a reduction to revenue and based on management’s judgment using historical experience and expectation of future conditions. As of November 30, 2012 and August 31, 2012 the allowance for sales returns amounted to $15,875 and $34,343, respectively.

Inventory

Inventories are valued at the lower of cost (first-in, first-out) or market and primarily consisted of components and finished goods for the Company’s PocketFinder® products. Packaging costs are expensed as incurred. The Company provides for a lower-of-cost-or-market ("LCM") adjustment against gross inventory values. The Company recorded an inventory valuation reserve for LCM inventory adjustments amounting to $58,473 during the three months ended November 30, 2012 related to the liability from inventory purchase commitments. The Company has not recorded an allowance for obsolescence as there are no issues with obsolescence as of November 30, 2012. In addition, a portion of the inventory totaling $1,350,000 is classified as a noncurrent asset at November 30, 2012 (see Note 2).

Net losses on firm purchase commitments for inventory are recognized in accordance with FASB ASC 330 – Inventory, whereby losses arising from firm, uncancelable and unhedged commitments for the future purchase of inventory items are recognized in the current period. During the year ended August 31, 2011, the Company recognized losses and a related liability from inventory purchase commitments totaling $685,500. As of November 30, 2012 and August 31, 2012, the liability from inventory purchase commitments amounted to $0 and $48,054, respectively.

Pursuant to FASB ASC 820 – Fair Value Measurement and Disclosures, the Company is required to estimate the fair value of all financial instruments included on its balance sheet. The carrying value of cash, accounts receivable, inventory, accounts payable and notes payable approximate their fair value due to the short period to maturity of these instruments.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method and with useful lives used in computing depreciation ranging from 1 to 5 years. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with FASB ASC 360 – Impairment or Disposal of Long-Lived Assets that requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. During the three months ended November 30, 2012, the Company recorded an impairment of certain patents amounting to $455,916.

Intangible Assets – Patents and Trademarks

The Company capitalizes internally developed assets related to certain costs associated with patents and trademarks. These costs include legal and registration fees needed to apply for and secure patents. The intangible assets acquired from other enterprises or individuals in an “arms length” transaction are recorded at cost. As of November 30, 2012 and August 31, 2012, the Company capitalized $753,715 for patent related expenditures. As of November 30, 2012 and August 31, 2012, the Company capitalized $59,470 for trademark related expenditures.

Patents are subject to amortization upon issuance by the United States Patent and Trademark Office. Intangible assets are amortized in accordance with FASB ASC 350 – Intangibles – Goodwill and Other, using the straight-line method over the shorter of their estimated useful lives or remaining legal life. Amortization expense totaled $16,792 and $7,613 for the three months ended November 30, 2012 and 2011, respectively.

Deferred revenue is a liability related to a revenue producing activity for which revenue has not yet been recognized. As of November 30, 2012 and August 31, 2012, deferred revenue amounted to $11,376 and $16,539, respectively, and consisted of prepaid service revenue from subscribers.

Beneficial Conversion Feature of Convertible Notes Payable

The Company accounts for the beneficial conversion feature of convertible notes payable when the conversion rate is below market value. Pursuant to FASB ASC 470-20 – Debt With Conversion and Other Options, the estimated fair value of the beneficial conversion feature is recorded in the financial statements as a discount from the face amount of the notes. Such discounts are amortized over the term of the notes or conversion of the notes, if sooner.

Derivative Liabilities

The Company accounts for its embedded conversion features in its convertible debentures in accordance FASB ASC 815-10 – Derivatives and Hedging, which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and FASB ASC 815-40 – Contracts in Entity’s Own Equity. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Gain (Loss) on Change in Fair Value of Derivative Liability” in other income (expense).

Revenue Recognition

Revenues are recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition, when (a) persuasive evidence of an arrangement exists, (b) the products or services have been provided to the customer, (c) the fee is fixed or determinable, and (d) collectability is reasonably assured. In instances where the customer, at its discretion, has the right to reject the product or services prior to final acceptance, revenue is deferred until such acceptance occurs.

In the last quarter of fiscal 2012, the Company changed its accounting policy regarding revenue recognition. Previously, the Company made reductions to revenue for product held at distributors that were accounted for as deferred revenue until product was “sold through” to retailers. The Company is no longer deferring revenue recognition until the product is “sold through” to retailers.

Device Sales Revenue – Revenue from the sales of PocketFinder® products is recognized upon shipment to website customers and upon delivery to distributors net of an allowance for estimated returns. The allowance for sales returns is estimated based on management’s judgment using historical experience and expectation of future conditions.

Service Revenue – Service revenue consists of monthly service fees initiated by the customer upon activation of a PocketFinder® device. Services fees are billed and collected in advance of the service provided for that month. Service revenue is recognized upon billing the customer.

Amounts billed to customers related to shipping and handling are classified as revenue, and the Company’s shipping and handling costs are included in cost of sales.

Advertising Costs

Advertising costs are expensed as incurred. For the three months ended November 30, 2012 and 2011, the Company incurred $268,025 and $39,705 of advertising costs, respectively.

Research and Development

Research and development costs are clearly identified and are expensed as incurred in accordance with FASB ASC 730 – Research and Development. For the three months ended November 30, 2012 and 2011, the Company incurred $42,364 and $356,299 of research and development costs, respectively.

Stock Based Compensation

The Company measures and recognizes compensation expense associated with its grant of equity-based awards in accordance with FASB ASC 718, Compensation – Stock Compensation. ASC 718 requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements over the vesting period.

In accordance with ASC 718, the Company estimates the grant-date fair value of its stock options using the Black-Scholes option-pricing model, which takes into account assumptions regarding an expected dividend yield, a risk-free interest rate, an expected volatility factor for the market price of the Company’s common stock and an expected term of the stock options. The fair value of stock options granted is amortized on a straight-line basis over the vesting periods. For the three months ended November 30, 2012 and 2011, stock-based compensation expense associated with stock options totaled $81,855 and $0, respectively.

The Company accounts for income taxes under FASB ASC 740 – Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements’ carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. The Company has included its $800 minimum California state income tax in its provision for income taxes for the three months ended November 30, 2012 and 2011.

Foreign Currency Translation

The Company accounts for foreign currency translation of its wholly owned subsidiary, Location Based Technologies, Ltd., pursuant to FASB ASC 830 – Foreign Currency Matters. The functional currency of Location Based Technologies, Ltd. is the British Pound Sterling. All assets and liabilities of Location Based Technologies, Ltd. are translated into United States Dollars using the current exchange rate at the end of each period. Revenues and expenses are translated using the average exchange rates prevailing throughout the respective periods. Certain transactions of the Location Based Technologies, Ltd. are denominated in United States dollars. The related translation adjustments are reported as a separate component of shareholders’ equity under the heading “Accumulated Other Comprehensive Income (Loss)”. Transaction gains or losses related to such transactions are recognized for each reporting period in the related consolidated statements of operations.

The Company computes basic earnings (loss) per share using the weighted average number of common shares outstanding during the period in accordance with FASB ASC 260 – Earnings Per Share, which specifies the compilation, presentation, and disclosure requirements for income per share for entities with publicly held common stock or instruments which are potentially common stock.

Diluted earnings (loss) per share are computed using the weighted average number of common shares outstanding and the dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of stock options and warrants issued by the Company. These potential common shares are excluded from diluted loss per share as their effect would be anti-dilutive.

15

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

2. INVENTORY

Inventory at November 30, 2012 and August 31, 2012 consisted of the following:

November 30,

2012

August 31,

2012

Current:

Packaging supplies

$

-

$

7,859

Device components

452,127

452,298

Finished goods

1,484,094

1,522,809

Inventory valuation reserve

(58,473

)

-

Inventories, current

$

1,877,748

$

1,982,966

Noncurrent:

Device components

$

1,200,000

$

1,200,000

Finished goods

150,000

150,000

Inventories, noncurrent

$

1,350,000

$

1,350,000

In the first quarter of 2012, the Company purchased a substantial amount of inventory components to produce PocketFinder® devices. Management analyzed its inventories based on existing purchase orders and current potential orders for future delivery and determined we may not realize all of the inventory components and finished goods within the next year. Inventories totaling $1,350,000 which may not be realized within a 12-month period have been reclassified as long-term as of November 30, 2012 and August 31, 2012.

16

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

3. PROPERTY AND EQUIPMENT

Property and equipment at November 30, 2012 and August 31, 2012 consisted of the following:

November 30,

2012

August 31,

2012

Machinery and equipment

$

175,965

$

55,965

Computer software (mobile apps)

83,999

83,999

Computer software (internal)

51,263

51,263

Computer and video equipment

17,632

17,632

Office furniture

24,526

24,526

353,385

233,385

Less: accumulated depreciation and impairment adjustment

(119,251

)

(109,403

)

Total property and equipment

$

234,134

$

123,982

Depreciation expense for the three months ended November 30, 2012 and 2011 amounted to $9,848 and $39,997, respectively.

4. RELATED PARTY TRANSACTIONS

Services Provided

A relative of the Chief Operating Officer provides bookkeeping and accounting services to the Company for $3,000 per month. During the three months ended November 30, 2012 and 2011, bookkeeping and accounting fees for this related party totaled $9,000 and $7,500, respectively.

17

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

4.RELATED PARTY TRANSACTIONS (Continued)

Services Provided (Continued)

On March 30, 2011, the Company entered into an Employment Letter of Intent (“LOI”) with a relative of the Company’s CEO and President, to act as Vice President of Customer Service. Under the terms of the LOI, the related party is paid compensation of $10,000 per month and 250,000 shares of the Company’s common stock as a signing bonus. The common stock was valued at $42,500 on the award date. On March 15, 2012, the Company entered into an Executive Employment Agreement with the related party. Under the terms of Executive Employment Agreement, the related party is paid compensation of $12,500 per month plus sales commissions and is entitled to earn up to 1,500,000 stock options that vest upon achieving certain milestones. During the three months ended November 30, 2012, total cash compensation under these related party agreements totaled $37,787. In addition, there were 50,000 stock options valued at $11,475 that vested during the three months ended November 30, 2012.

West Coast Customs

In July 2012, an officer of the Company entered into a Subscription Agreement with West Coast Customs ("WCC") to acquire an approximate 1.5% ownership of WCC. The Company and WCC are under a Manufacturing and Trademark License Agreement for co-branding of the PocketFinder® products.

5. CONVERTIBLE NOTES PAYABLE

$25,000 Promissory Note

On June 28, 2011, the Company entered into a promissory note agreement for $25,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by June 27, 2012. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.25 per share. On December 18, 2012, the promissory note agreement was extended for an additional six months and is due on June 27, 2013.

As of November 30, 2012, the note payable balance and accrued interest totaled $25,000 and $3,548, respectively.

18

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

JMJ Financing

On March 16, 2012, the Company entered into a Securities Purchase Agreement (“SPA”) for $500,000 pursuant to which the Company entered into a Promissory Note Agreement (“Note”) for $555,000 consisting of $500,000 of principal and $55,000 of prepaid interest, and “V warrants” to purchase 869,565 shares of the Company’s common stock. Under the terms of the Note, $555,000 of principal and interest shall be repaid by September 16, 2012. If the loan is repaid within the first 90 days, no additional interest shall be charged. If the Company extends the loan beyond the first 90 days, an additional 12% interest shall be charged for the next 90 days. The Note contains a maturity date default provision whereby the greater of a predetermined conversion amount or 130% of the principal and 100% of the accrued interest is due if the note is not repaid by the due date. The Note can be converted into the Company’s common stock at the end of the term only if the principal and interest are not repaid based upon the conversion price formula. The warrants permit for the purchase of 869,565 shares of common stock at $0.23 per share. The warrants expire on March 16, 2017. Under the terms of the SPA, $200,000 was allocated for the purchase of the warrants and the remaining $300,000 was allocated for the Note. As of November 30, 2012, the note payable balance and accrued interest totaled $555,000 and $66,600, respectively.

On September 16, 2012, the Company did not extend the due date of the $555,000 Promissory Note Agreement with JMJ Financial. As such, the Company is in default in the payment of the principal and unpaid accrued interest and the note holder is able to convert unpaid principal and accrued interest into shares of the Company’s common stock.

In accordance with ASC 815 – Derivatives and Hedging, the Company determined that the conversion feature of the Note met the criteria of an embedded derivative, and therefore the conversion feature of this Note needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the default date when the Note became convertible using the Black-Scholes model. As such, on the default date, the Company recorded the conversion options as a liability and recorded a loss in the value of the derivative liability of $196,103. For the three months ended November 30, 2012, the Company recorded a loss for the change in fair value of the derivative liability in the amount of $392,137 due to the fluctuation in the current market prices.

19

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

JMJ Financing (Continued)

On April 18, 2012, the Company entered into a Promissory Note Agreement (“Note”) for $620,000 consisting of $560,000 of principal and $60,000 of prepaid interest. Under the terms of the Note, $620,000 of principal and interest shall be repaid by July 18, 2012. The Note contains a maturity date default provision whereby the greater of a predetermined conversion amount or 130% of the principal and 100% of the accrued interest is due if the note is not repaid by the due date. The Note can be converted into the Company’s common stock at the end of the term only if the principal and interest are not repaid based upon the conversion price formula. As of November 30, 2012, $310,000 of the principal balance was repaid and the remaining $310,000 principal balance and $18,600 of accrued interest was converted into 1,488,465 shares of the Company’s common stock. As of November 30, 2012, there was no note payable balance or accrued interest owed.

On May 1, 2012, the Company entered into a Securities Purchase Agreement (“SPA”) for $500,000 pursuant to which the Company entered into a Promissory Note Agreement (“Note”) for $550,000 consisting of $500,000 of principal and $50,000 of prepaid interest, and “W warrants” to purchase 1,086,957 shares of the Company’s common stock. Under the terms of the Note, $550,000 of principal and interest shall be repaid by November 1, 2012. If the loan is repaid within the first 90 days, no additional interest shall be charged. If the Company extends the loan beyond the first 90 days, an additional 12% interest shall be charged for the next 90 days. The Note contains a maturity date default provision whereby the greater of a predetermined conversion amount or 130% of the principal and 100% of the accrued interest is due if the note is not repaid by the due date. The Note can be converted into the Company’s common stock at the end of the term only if the principal and interest are not repaid based upon the conversion price formula. The warrants permit for the purchase of 1,086,957 shares of common stock at $0.23 per share. The warrants expire on May 1, 2017. Under the terms of the SPA, $250,000 was allocated for the purchase of the warrants and the remaining $250,000 was allocated for the Note. As of November 30, 2012, the note payable balance and accrued interest totaled $550,000 and $66,000, respectively.

On November 1, 2012, the Company did not extend the due date of the $550,000 promissory note agreement with JMJ Financial. As such, the Company is in default in the payment of the principal and unpaid accrued interest and the note holder is able to convert unpaid principal and accrued interest into shares of the Company’s common stock.

20

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

JMJ Financing (Continued)

In accordance with ASC 815 – Derivatives and Hedging, the Company determined that the conversion feature of the Note met the criteria of an embedded derivative, and therefore the conversion feature of this Note needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the default date when the Note became convertible using the Black-Scholes model. As such, on the default date, the Company recorded the conversion options as a liability and recorded a loss in the value of the derivative liability of $381,564. For the three months ended November 30, 2012, the Company recorded a loss for the change in fair value of the derivative liability in the amount of $194,684 due to the fluctuation in the current market prices.

$300,000 Unsecured Convertible Promissory Note

On June 28, 2012, the Company entered into an unsecured convertible promissory note agreement for $300,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by June 28, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.42 per share resulting in a beneficial conversion feature in the amount of $120,000, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $29,918 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $231,288 and $12,822, respectively.

21

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

$50,000 Unsecured Convertible Promissory Note

On July 9, 2012, the Company entered into an unsecured convertible promissory note agreement for $50,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by July 9, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.41 per share resulting in a beneficial conversion feature in the amount of $18,333, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $4,571 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $38,950 and $1,986, respectively.

$25,000 Unsecured Convertible Promissory Note

On July 9, 2012, the Company entered into an unsecured convertible promissory note agreement for $25,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by July 9, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.41 per share resulting in a beneficial conversion feature in the amount of $9,167, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $2,285 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $19,475 and $993, respectively.

22

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

$27,500 Unsecured Convertible Promissory Note

On July 9, 2012, the Company entered into an unsecured convertible promissory note agreement for $27,500. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by July 9, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.41 per share resulting in a beneficial conversion feature in the amount of $10,083, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $2,514 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $21,422 and $1,093, respectively.

$50,000 Unsecured Convertible Promissory Note

On July 13, 2012, the Company entered into an unsecured convertible promissory note agreement for $50,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by July 13, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.40 per share resulting in a beneficial conversion feature in the amount of $16,667, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $4,155 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $39,772 and $1,932, respectively.

23

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

5.CONVERTIBLE NOTES PAYABLE (Continued)

$100,000 Unsecured Convertible Promissory Note

On July 13, 2012, the Company entered into an unsecured convertible promissory note agreement for $100,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by July 13, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.30 per share.

The conversion rate of $0.30 per share was below the market value of $0.40 per share resulting in a beneficial conversion feature in the amount of $33,333, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $8,311 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $79,543 and $3,863, respectively.

$1,000,000 Secured Convertible Promissory Note

On November 28, 2012, the Company entered into a Securities Purchase Agreement and related Secured Convertible Promissory Note (“Note”) for up to $1,000,000. Under the terms of the Note, the principal and unpaid interest shall be repaid by April 13, 2013. The note bears interest at 8% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share. The Note is secured by a collateralized security interest granted in a patent owned by the Company. As of November 30, 2012, the Company received $250,000 of the $1,000,000 Note. The remaining $750,000 was received as of December 26, 2012.

As of November 30, 2012, the note payable balance and accrued interest totaled $250,000 and $164, respectively.

24

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

6. CONVERTIBLE NOTES PAYABLE – RELATED PARTY

$400,000 Unsecured Convertible Promissory Note

On September 10, 2012, the Company entered into an unsecured convertible promissory note agreement with a board member for $400,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by September 10, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share. In addition, the Company issued 400,000 shares of common stock valued at $88,000 on the award date

The conversion rate of $0.20 per share was below the market value of $0.22 per share resulting in a beneficial conversion feature in the amount of $40,000, recognized as a discount from the face amount of the convertible note payable and amortized over the term of the note. Amortization expense related to this beneficial conversion feature amounted to $9,479 for the three months ended November 30, 2012.

As of November 30, 2012, the note payable balance, net of the unamortized beneficial conversion feature, and accrued interest totaled $369,589 and $9,534, respectively.

$100,000 Unsecured Convertible Promissory Note

On November 1, 2012, the Company entered into an unsecured convertible promissory note agreement with a board member for $100,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by November 1, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share. In addition, the Company agreed to issue 100,000 shares of common stock valued at $17,000 on the award date.

As of November 30, 2012, the note payable balance and accrued interest totaled $100,000 and $822, respectively.

25

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

6.CONVERTIBLE NOTES PAYABLE – RELATED PARTY (Continued)

$50,000 Unsecured Convertible Promissory Note

On November 1, 2012, the Company entered into an unsecured convertible promissory note agreement with a board member for $50,000. Under the terms of the promissory note agreement, principal and any unpaid interest shall be repaid by November 1, 2013. The note bears interest at 10% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.20 per share. In addition, the Company agreed to issue 50,000 shares of common stock valued at $8,500 on the award date.

As of November 30, 2012, the note payable balance and accrued interest totaled $50,000 and $411, respectively.

7. LINE OF CREDIT

On January 5, 2011, the Company entered into a Loan and Security Agreement (“Loan Agreement”) with Silicon Valley Bank for a $1,000,000 non-formula line of credit. The principal amount outstanding under the credit line accrues interest at a floating per annum rate equal to the greater of (i) the Prime Rate, plus 2.5% or (ii) 6.5% and is to be paid monthly. The principal is due at maturity on October 5, 2013. The Company must maintain certain financial covenants under the Loan Agreement. The personal guarantor for the credit line is a director and stockholder of the Company.

In accordance with the Loan Agreement, Silicon Valley Bank earned a success fee equal to 6% warrant coverage of the credit line or $60,000 divided by a $0.20 share price upon the Company successfully raising new capital or equity in excess of $2,000,000. The warrant is valid for five years from the time of issuance (see Note 10).

26

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

7.LINE OF CREDIT (Continued)

On August 24, 2011, the Company entered into a First Amendment to Loan and Security Agreement (“First Amendment”) to waive existing and pending defaults for failing to comply with certain financial covenants. On February 3, 2012, the Company entered into a Second Amendment to Loan and Security Agreement (“Second Amendment”) to extend the maturity date to April 4, 2012 and to waive existing and pending defaults for failing to comply with certain financial covenants. On April 17, 2012, the Company entered into a Third Amendment to Loan and Security Agreement (“Third Amendment”) to extend the maturity date to October 5, 2012 and to waive existing and pending defaults for failing to comply with certain financial covenants.

On November 19, 2012, but effective as of October 5, 2012, the Company entered into a Fourth Amendment to Loan and Security Agreement (“Fourth Amendment”) with Silicon Valley Bank for the $1,000,000 line of credit to extend the maturity date to October 5, 2013, to amend the interest rate and to waive existing and pending defaults for failing to comply with certain financial covenants.

As of November 30, 2012, the outstanding balance on the line of credit and accrued interest totaled $1,000,000 and $8,583, respectively. As of August 31, 2012, the outstanding balance on the line of credit and accrued interest totaled $1,000,000 and $5,597, respectively.

8. COMMITMENTS AND CONTINGENCIES

Inventory Purchase Commitments

On July 20, 2011, the Company initiated a purchase order to manufacture the first 10,000 PocketFinder® devices. As of August 31, 2011, the Company recognized losses and a related liability from inventory purchase commitments totaling $685,500. The liability from inventory purchase commitments is relieved as the related inventory is purchased. As of November 30, 2012 and August 31, 2012, the balance of the liability from inventory purchase commitments amounted to $0 and $48,054, respectively.

27

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

8.COMMITMENTS AND CONTINGENCIES(Continued)

Operating Leases

On May 11, 2011, the Company entered into a lease agreement to lease approximately 4,700 square feet of general office space in Irvine, California, for base rent ranging from $6,199 to $7,193 per month over the 48 month lease term. The lease term is from July 1, 2011 through June 30, 2015.

Total rental expense on operating leases for the three months ended November 30, 2012 and 2011 totaled $19,527 and $19,203, respectively.

As of November 30, 2012, the future minimum lease payments are as follows:

For the Years Ending:

November 30, 2013

$

79,780

November 30, 2014

83,663

November 30, 2015

50,351

Total

$

213,794

Contingencies

In 2007, the Company sold convertible notes to accredited investors in reliance on an exemption from registration provided by Section 4(2) of the Securities Act and similar state exemptions. Management has been advised by counsel that the availability of those exemptions cannot be determined with legal certainty due to the fact that the Company or its predecessors may not have complied with all of the provisions of exemption safe-harbors for such sales offered by rules promulgated under the Securities Act by the SEC. Thus, it is possible that a right of rescission may exist for shares underlying the convertible notes for which the statute of limitations has not run. From November 2007 through December 2007, all of the convertible notes payable totaling $5,242,000 were converted into 15,726,000 shares of the Company’s common stock, and subsequently, some of the shares were sold in the open market. Management has performed an analysis under FAS 5, Accounting for Contingencies, and concluded that the likelihood of a right of rescission being successfully enforced on the remaining convertible note shares is remote, and consequently, has accounted for these shares in permanent equity in the financial statements.

28

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

9. EQUITY

In December 2011, the Company issued 250,000 shares of common stock to a consultant in exchange for consulting services related to business development. The shares were valued at $90,000, which represents the fair market value of the services provided on the award date.

In December 2011, the Company issued 150,000 shares of common stock to three consultants in exchange for consulting services related to technology development. The shares were valued at $54,000, which represents the fair market value of the services provided on the award date.

In December 2011, the Company issued 90,278 shares of common stock to a consultant in exchange accounting related advisory services. The shares were valued at $32,500, which represents the fair market value of the services provided on the award date.

In December 2011, the Company issued 50,000 shares of common stock to a consultant in exchange for legal advisory services. The shares were valued at $18,000, which represents the fair market value of the services provided on the award date.

In December 2011, the Company issued 50,000 shares of common stock to a consultant and related party in exchange for customer service related advisory services. The shares were valued at $18,000, which represents the fair market value of the services provided on the award date.

In December 2011, the Company issued 100,000 shares of common stock to an employee in accordance with an employment agreement. The shares were valued at $36,000, which represents the fair market value of the services provided on the award date.

In February 2012, the Company issued 200,000 shares of common stock to four of the Company’s directors in exchange for serving on the board of directors. The shares were valued at $94,000, which represents the fair market value of the services provided on the award date.

In February 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development and sales representative services valued at $300,000 on the award date.

In February 2012, the Company issued 26,786 shares of common stock to a consultant in exchange accounting related advisory services. The shares were valued at $7,500, which represents the fair market value of the services provided on the award date.

29

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

9.EQUITY(Continued)

Common Stock (Continued)

In April 2012, the Company issued 200,000 shares of common stock in connection with a note payable issuance. The shares were valued at $56,000, which represents the fair market value of the note payable issuance costs on the award date.

In May 2012, the Company issued 24,359 shares of common stock in connection with a cashless exercise of 50,000 “Series T” warrants at an exercise price of $0.20 per share (see Note 10).

In May 2012, the Company issued 25,000 shares of common stock to a consultant in exchange accounting related advisory services. The shares were valued at $8,500, which represents the fair market value of the services provided on the award date.

In May 2012, the Company issued 100,000 shares of common stock to a consultant in exchange for consulting services related to business development. The shares were valued at $37,000, which represents the fair market value of the services provided on the award date.

In May 2012, the Company issued 50,000 shares of common stock to three consultants in exchange for consulting services related to technology development. The shares were valued at $18,500, which represents the fair market value of the services provided on the award date.

In June 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development and sales representative services valued at $300,000 on the award date.

In June 2012, the Company issued 27,391 shares of common stock in connection with a cashless exercise of 60,000 “Series T” warrants at an exercise price of $0.20 per share (see Note 10).

In July 2012, the Company issued 350,000 shares of common stock for the partial conversion of a promissory note amounting to $77,476. The promissory note was converted on the basis of $0.22 per share (see Note 5).

In August 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development and sales representative services valued at $300,000 on the award date.

30

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

9.EQUITY(Continued)

Common Stock (Continued)

In August 2012, the Company issued 250,000 shares of common stock for the partial conversion of a promissory note amounting to $42,560. The promissory note was converted on the basis of $0.17 per share (see Note 5).

In August 2012, the Company issued 1,097,288 shares of common stock for the conversion of accrued finder’s fees and accounts payable totaling $288,844. The accrued finder’s fees and accounts payable were converted on the basis of $0.26 per share.

In August 2012, the Company issued 200,000 shares of common stock to four of the Company’s directors in exchange for serving on the board of directors. The shares were valued at $48,000, which represents the fair market value of the services provided on the award date.

In August 2012, the Company issued 50,000 shares of common stock to a consultant in exchange accounting related advisory services. The shares were valued at $12,000, which represents the fair market value of the services provided on the award date.

In September 2012, the Company issued 750,000 shares of common stock to a consultant for business development services valued at $172,500 on the award date.

In September 2012, the Company issued 360,000 shares of common stock for the partial conversion of a promissory note amounting to $57,773 (see Note 5).

In September 2012, the Company issued 500,000 shares of common stock for the partial conversion of a promissory note amounting to $65,320 (see Note 5).

In October 2012, the Company issued 628,465 shares of common stock for the partial conversion of a promissory note and accrued interest amounting to $85,471 (see Note 5).

In November 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development services valued at $210,000 on the award date.

In November 2012, the Company issued 200,000 shares of common stock to four of the Company’s directors in exchange for serving on the board of directors. The shares were valued at $42,000, which represents the fair market value of the services provided on the award date.

31

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

9.EQUITY(Continued)

Common Stock (Continued)

In November 2012, the Company issued 50,000 shares of common stock to a consultant in exchange accounting related advisory services. The shares were valued at $7,500, which represents the fair market value of the services provided on the award date.

In November 2012, the Company issued 550,000 shares of common stock in connection with three note payable issuances. The shares were valued at $113,500, which represents the fair market value of the note payable issuance costs on the award date (see Note 5).

Prepaid Services Paid In Common Stock

In August 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development and sales representative services valued at $300,000 on the award date to be amortized from August 1, 2012 to August 1, 2013. Unamortized prepaid services paid in common stock related to such stock issuance amounted to $200,000 at November 30, 2012.

In September 2012, the Company issued 750,000 shares of common stock to a consultant for business development and sales representative services valued at $172,500 on the award date to be amortized from September 1, 2012 to September 1, 2013. Unamortized prepaid services paid in common stock related to such stock issuance amounted to $129,375 at November 30, 2012.

In November 2012, the Company issued 1,000,000 shares of common stock to a consultant for business development and sales representative services valued at $210,000 on the award date to be amortized from October 29, 2012 to April 28, 2013. Unamortized prepaid services paid in common stock related to such stock issuance amounted to $175,000 at November 30, 2012.

Warrants

Warrants to purchase up to 8,926,715 shares of the Company’s common stock are outstanding at November 30, 2012 (see Note 10).

32

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

9.EQUITY(Continued)

Stock Incentive Plan

On January 12, 2012, the board of directors adopted the Amended and Restated 2007 Stock Incentive Plan (the “2007 Plan”). The aggregate number of shares of common stock that may be issued under the 2007 Plan is 20,000,000 and such shares are reserved for issuance out of the authorized but previously unissued shares. Employees, service providers and non-employee directors of the Company and its affiliates are eligible to receive non-statutory stock options, incentive stock options, restricted stock and stock appreciation rights. The 2007 Plan will continue until the earlier of the termination of the 2007 Plan by the board of directors or ten years after the effective date.

The 2007 Plan is administered by the Company’s compensation committee made up of three non-executive directors. The compensation committee may determine the specific terms and conditions of all awards granted under the 2007 Plan, including, without limitation, the number of shares subject to each award, the price to be paid for the shares and the vesting criteria, if any. The compensation committee has discretion to make all determinations necessary or advisable for the administration of the 2007 Plan.

There were 18,500,000 incentive stock options granted under the 2007 Plan as of November 30, 2012 (see Note 10.)

10. STOCK OPTIONS AND WARRANTS

Stock Options

On August 30, 2007, the Company granted options outside of the 2007 Plan to three of the Company’s officers to purchase 6,000,000 common shares each for a total of 18,000,000 common shares at $0.33 per share in accordance with Stock Option Agreements. Options to purchase shares are vested upon the Company achieving a certain number of customers. All options vest upon a change of control of the Company. The options expire 10 years from the vested date. As of August 31, 2012, there were no options that were vested and presently exercisable.

33

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

10.STOCK OPTIONS AND WARRANTS (Continued)

Stock Options (Continued)

On January 12, 2012, the Company granted options under the 2007 Plan to three of the Company’s officers to purchase 4,000,000 common shares each for a total of 12,000,000 common shares at $0.31 per share in accordance with the Executive Employment Agreements. Options to purchase shares are vested upon achieving certain milestones under the Executive Employment Agreements. All options vest upon a change of control of the Company. The options expire on January 12, 2017. As of November 30, 2012, there were 1,500,000 options that were vested and presently exercisable. The fair value of such vested options using the Black-Scholes option pricing model amounted to $404,121. No options were exercised as of November 30, 2012.

On March 15, 2012, the Company granted options under the 2007 Plan to two officers of the Company to purchase 2,000,000 common shares at $0.31 per share in accordance with Executive Employment Agreements. Options to purchase shares are vested upon achieving certain milestones under the Executive Employment Agreement. All options vest upon a change of control of the Company. The options expire on March 15, 2017. As of November 30, 2012, there were 300,000 options that were vested and presently exercisable. The fair value of such vested options using the Black-Scholes option pricing model amounted to $68,849. No options were exercised as of November 30, 2012.

On March 15, 2012, the Company granted options under the 2007 Plan to two employees to purchase 4,500,000 common shares at $0.31 per share in accordance with Executive Employment Agreements. Options to purchase shares are vested upon achieving certain milestones under the Executive Employment Agreement. All options vest upon a change of control of the Company. The options expire on March 15, 2017. As of November 30, 2012, there were 862,500 options that were vested and presently exercisable. The fair value of such vested options using the Black-Scholes option pricing model amounted to $197,941. No options were exercised as of November 30, 2012.

Warrants

In June 2008, the Company issued “Series C” warrants to certain technology and legal consultants to purchase a total of 180,000 common shares at $2.00 per share, in exchange for consulting and advisory services related to developing the PocketFinder®. The fair value of the warrants using the Black-Scholes option pricing model amounted to $353,447. In July 2011, two “Series R” warrants to purchase a total of 60,000 common shares were cancelled. No warrants were exercised as of November 30, 2012.

34

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

10.STOCK OPTIONS AND WARRANTS (Continued)

Warrants (Continued)

On December 16, 2009, the Company agreed to issue “Series R” warrants to certain consultants to purchase 240,000 common shares at $0.68 per share in exchange for consulting services related to technology and product development and legal advisory services. The warrants expire on December 16, 2014. The fair value of the warrants using the Black-Scholes option pricing model amounted to $152,801. In August 2011, a “Series R” warrant to purchase 25,000 common shares was cancelled. No warrants were exercised as of November 30, 2012.

On December 17, 2010, the Company issued “Series S” warrants to the Silicon Valley Bank loan personal guarantor to purchase 3,600,000 common shares at $0.20 per share in connection with the Financing Agreement dated December 1, 2010. The warrants expire on December 14, 2015. The fair value of the warrants using the Black-Scholes option pricing model amounted to $926,900. No warrants were exercised as of November 30, 2012.

On December 17, 2010, the Company issued “Series S” warrants to a consultant to purchase 500,000 common shares at $0.20 per share for finder’s fees in connection with a debt issuance. The warrants expire on December 14, 2015. The fair value of the warrants using the Black-Scholes option pricing model amounted to $128,736. No warrants were exercised as of November 30, 2012.

On July 29, 2011, the Company issued "Series T" warrants to purchase 1,787,500 common shares at $0.20 per share to placement agents in connection with the private placement. The warrants expire on July 29, 2016. The fair value of the warrants using the Black-Scholes option pricing model amounted to $837,664. There were 110,000 warrants exercised as of November 30, 2012.

On August 31, 2011, the Company issued “Series U” warrants to Silicon Valley Bank to purchase 300,000 common shares at $0.20 per share in connection with the private placement success fee. The warrants expire on July 29, 2016. The fair value of the warrants using the Black-Scholes option pricing model amounted to $140,587. No warrants were exercised as of November 30, 2012.

On March 1, 2012, the Company issued “Series X” warrants to a consultant to purchase 57,693 common shares at $0.26 per share for marketing and promotional services provided to the Company. The warrants expire on March 1, 2015. The fair value of the warrants using the Black-Scholes option pricing model amounted to $3,761. No warrants were exercised as of November 30, 2012.

35

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

10.STOCK OPTIONS AND WARRANTS (Continued)

Warrants (Continued)

On March 16, 2012, the Company issued “Series V” warrants to JMJ Financial to purchase 869,565 common shares at $0.23 per share for cash proceeds of $200,000 under a Stock Purchase Agreement. The warrants expire on March 16, 2017. No warrants were exercised as of November 30, 2012.

On May 1, 2012, the Company issued “Series W” warrants to JMJ Financial to purchase 1,086,957 common shares at $0.23 per share for cash proceeds of $250,000 under a Stock Purchase Agreement. The warrants expire on May 1, 2017. No warrants were exercised as of November 30, 2012.

On October 15, 2012, the Company issued a “Series Y” warrant to purchase 500,000 common shares at $0.20 per share to a consultant in exchange for accounting advisory services provided to the Company. The warrant expires on October 15, 2017. The fair value of the warrants using the Black-Scholes option pricing model amounted to $99,873.

No warrants were exercised as of November 30, 2012.

11. PROVISION FOR INCOME TAXES

Deferred income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences arise from the difference between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and tax rates on the date of enactment.

The Company did not provide any current or deferred U.S. federal income taxes or benefits for any of the periods presented because the Company has experienced operating losses since inception. The Company provided a full valuation allowance on the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined that it is more likely than not that we will not earn sufficient income to realize the deferred tax assets during the carry forward period.

36

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

11.PROVISION FOR INCOME TAXES (Continued)

The components of the Company’s deferred tax asset as of November 30, 2012 and August 31, 2012 are as follows:

November 30,

2012

August 31,

2012

Net operating loss carry forward and deductible temporary differences

$

15,360,000

$

14,762,000

Valuation allowance

(15,360,000

)

(14,762,000

)

Net deferred tax asset

$

-

$

-

A reconciliation of the combined federal and state statutory income taxes rate and the effective rate is as follows:

November 30,

2012

August 31,

2012

Federal tax at statutory rate

34.00

%

34.00

%

State income tax net of federal benefit

5.83

%

5.83

%

Valuation allowance

(39.83

%)

(39.83

%)

-

-

The Company’s valuation allowance increased by $598,000 for the three months ended November 30, 2012.

As of November 30, 2012 and August 31, 2012, the Company had federal and state net operating loss carryforwards of approximately $38,563,000 and $37,063,000, respectively, which can be used to offset future federal income tax. The federal and state net operating loss carryforwards expire at various dates through 2032. Deferred tax assets resulting from the net operating losses are reduced by a valuation allowance, when, in the opinion of management, utilization is not reasonably assured. These carryforwards may be limited upon a change in ownership or consummation of a business combination under IRC Sections 381 and 382.

As of November 30, 2012 and August 31, 2012, no accrued interest and penalties are recorded relating to uncertain tax positions. Any such interest and penalties would be included in interest expense as a component of pre-tax net income or loss. The Company's tax filings are no longer open to examination by the Internal Revenue Service for tax years prior to 2008 and by state taxing authorities for tax years prior to 2007.

37

LOCATION BASED TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOVEMBER 30, 2012

12. SUBSEQUENT EVENTS

On December 10, 2012, the Company entered into a Securities Purchase Agreement and related Secured Convertible Promissory Note (“Note”) for up to $1,000,000. Under the terms of the Note, the principal and unpaid interest shall be repaid by June 30, 2013. The note bears interest at 8% per annum. At the option of the note holder, the note may be converted, in whole or in part, into shares of the Company’s common stock on the basis of $0.25 per share. The Note is secured by a collateralized security interest granted in a patent owned by the Company. As of January 18, 2013, the Company has not received any of the Note proceeds.

On December 14, 2012, the Company issued 500,000 shares of common stock to a consultant for finder’s fees valued at $150,000 on the award date.

On December 18, 2012, the Company issued 62,069 shares of common stock in connection with a cashless exercise of 200,000 “Series T” warrants at an exercise price of $0.20 per share.

38

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

This report contains certain forward-looking statements of our intentions, hopes, beliefs, expectations, strategies, and predictions with respect to future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are usually identified by the use of words such as “believe,” “will,” “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “should,” “could,” or similar expressions. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Part I, Item 1A. “Risk Factors” and other sections of this report, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements, express or implied by these forward-looking statements.

Although we believe that the assumptions underlying the forward-looking statements contained in this report are reasonable, any of the assumptions could be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this report and any amendments to this report. We will not update these statements unless the securities laws require us to do so. Accordingly, you should not rely on forward-looking statements because they are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements.

Overview. We were incorporated under the laws of the State of Nevada in April 2006 as Springbank Resources, Inc. (“SRI”). SRI was formed to engage in the exploration and development of oil and gas, and by 2007 had disposed of all of its assets and satisfied its liabilities. In October 2007, SRI acquired all of the outstanding stock of Location Based Technologies, Corp. (“Old LBT”), following which SRI merged Old LBT into itself and, in the process, SRI’s name was changed to Location Based Technologies, Inc. Old LBT was incorporated in September 2005 by David Morse, Joseph Scalisi and Desiree Mejia, who became our officers and directors, in order to develop the PocketFinder personal locators.

Our principal executive offices are located at 49 Discovery, Suite 260, Irvine, California 92618, and our telephone number is 888-600-1044.

Our shares of common stock are currently traded in the over-the-counter market and our stock price is reported on the OTC Bulletin Board under the symbol “LBAS.”

Unless otherwise stated, all references to “we,” “us,” “our,” the “company” and similar designations refer to Location Based Technologies, Inc.

Location Based Technologies®, PocketFinder® and PocketFinder Pets® are registered trademarks, and PocketFinder Network™, PocketFinder People™, PocketFinder Vehicle™, PocketFinder Luggage™, PocketFinder Mobile™, PF-886™, “Powered by LBT” and VehicleFleetFinder™ are trademarks, of the company. With respect to this report, we reserve all rights to the foregoing trademarks regardless of whether they carry the “®” or “™” designation.

Our Business. We market and sell affordable, leading-edge, proprietary, and easy-to-use consumer and commercial location devices and services. Our devices utilize Assisted Global Positioning System (“A-GPS”) and General Packet Radio Service (“GPRS”) technologies in conjunction with our patented, proprietary technologies designed to enhance and enrich the way businesses and families interact and stay connected around the world.

39

Our flagship product, the PocketFinder, is a small, waterproof, rugged and completely wireless location device that enables users to easily locate anyone or anything they care about, from a computer or web-enabled device. Our products deliver critical information to users, such as: device location, longitude, latitude, heading speed and 60 days of location history. This information can be viewed passively through a user’s account or can be actively sent to a user via SMS text, email or push notification if the user sets an alert. The target markets for the PocketFinder include: young children, seniors, people with special needs and people who need to track valuable assets such as luggage or sporting equipment. In addition to the PocketFinder, we also sell the PocketFinder Pet and the PocketFinder Vehicle products. The PocketFinder Pet is designed for pets weighing 15 pounds or more, and we market the PocketFinder Vehicle to families with new drivers, car enthusiasts, motorcycle owners, watercraft owners and business fleets. The PocketFinder Vehicle attaches directly to a battery or fuse box, so it has a constant supply of power. All PocketFinder products operate on the same user interface, which enables our customers receive the same features, functionality and user-experience, regardless of which product they own. To access their account or locate their devices, users can logon to our website at www.pocketfinder.com or use our native iPhone, iPad or Android Apps.

We generate revenue by selling our products and charging customers an ongoing service fee, for which we offer monthly and annual subscription plans. All of our products that are sold in the US operate on the AT&T cellular network. The GPS data which is collected by the device is transmitted to our customers (via our servers) on AT&T’s network. Since AT&T’s network operates in over 95% of the wireless world, our products can work around the globe. Customers who use their devices internationally will incur a higher monthly charge.

In addition to the PocketFinder family of products, we also sell devices and services that are designed for business and governmental use. These devices include the PF-886 and the LBT Solutions Vehicle. The PF-886 functions similarly to the PocketFinder, but is much larger in size primarily due to its larger battery. The PF-886 is designed to last for up to 5 months on a single charge and is ideal for asset and cargo tracking. The LBT Solutions Vehicle comes with 2, 3 and 4 wire options, which provides additional features such as engine on/off monitoring and engine kill capability. All of our commercial customers also have access to enhanced reporting features. Commercial customers access their account and view their devices by visiting www.locationbasedtech.com or by downloading our native iPhone, iPad or Android Apps.

We have completed our first year of sales for our PocketFinder products in the Apple Stores in the U.S. and Canada. We also continued sales through Apple Online for both the PocketFinder and the PocketFinder Vehicle.

We recently expanded the sales channel for our consumer products to include Crutchfield and Amazon. PocketFinder Pet and Vehicle locators are also available to purchase from our website at www.pocketfinder.com. Combined sales and activations are showing steady increases of approximately 15% month over month. Advertising and general market awareness over the past calendar year include our PocketFinder products highlighted by Dr. Gadget on the radio and on ABC’s The View and Extra, NBC’s Today Show, and a month long focus on teen driving safety in partnership with NBCUniversal in Texas. In addition, Jennifer Jolly presented our products in Chicago, Atlanta, and Los Angeles on CNN, CBS, WGN, WLS, Daily Motion, and ABC’s Money Matters. Similarly, Steve Greenberg presented our products on NYC WPIX, NBC in Philadelphia, Washington DC, Miami, Seattle, Minnesota, and Denver, Chicago’s WGN, ABC in Dallas and on CBS in Houston. We are significantly expanding our presence on the web through social media as well as in digital and print media.

Our Apple device sales are restricted to the United States and Canada yet our devices continue to draw international attention. We currently have devices working in over 70 countries (37% of all countries in the world) and multiple requests for distribution opportunities from 64 countries around the world. Associated with this kind of interest, we are working with a select few of these distributors and addressing the need for local wireless carrier involvement in order to be able to provide a reasonably priced monthly service fee, solid customer and technical support, and market reach. In November 2012, we entered into an agreement with our first European distributor, EE (a partnership between Orange Telecom and Deutsche’s Telecom), which is the largest M2M telecommunications company in the United Kingdom. We expect to have devices for sale in EE retail stores in the first calendar quarter of 2013.

Commercial growth has been a meaningful revenue contributor. The company officially launched its Business Solutions Platform (www.locationbasedtech.com) in August of 2012 and through October of 2012 approximately 150 business customers are benefitting from our Business Solutions location services. Our largest business customer is AT&T and they will use our devices to track their own equipment domestically. The majority of our customers are small and mid-sized customers seeking high value pricing and simplified interfaces that minimize training time and requirements. We are adding approximately 1.5 new business customers per day. Orders for combined hardware sales of approximately $1.2M were received for delivery in the fourth quarter of calendar 2012.

40

Government and military organizations are also in various stages of testing our products. We anticipate the military could complete its testing by February of 2013. Our relationship with The World Famous West Coast Customs (“WCC”) is moving forward as well. We have entered into a co-branding relationship with WCC, and they will be selling a co-branded WCC PocketFinder and PocketFinder Vehicle through their distribution channels, which include Best Buy and www.bestbuy.com. Additionally, our products will appear in several episodes the coming season of Inside West Coast Customs, and we are planning to have one episode devoted entirely to our PocketFinder Vehicle product. The show is scheduled to air in the beginning of 2013 and will reach an estimated 28.5M households.

We continue to work diligently on selling devices into Mexico. Our products have received all of the necessary governmental certifications and we recently signed a distribution agreement with Sales and Support Representatives (“SaS Reps” or www.sasreps.com). SaS Reps is a Distributor/Reseller/Agent of communications products and services to Central, North and South American service providers, manufacturers and resellers. There continues to be pent up demand for various tracking applications in the world of logistics and we plan to address it through our relationship with SaS Reps.

Our products continue to be supported by feature rich Apps that allow users to maximize the functionality and benefits of PocketFinder devices from almost anywhere at any time. The iPhone, native iPad, and Android Apps are free downloads available through the iTunes Store or on Google Play and the Android Market respectively. They deliver the ability to set up and manage devices while users are on the go throughout the day or night from virtually anywhere in the world that the user’s phone has network connectivity. BlackBerry and Windows Mobile Professional 6.0 Operating Systems are able to access the existing www.pocketfinder.com website to manage and set up accounts due to the Mobile Device optimization that has been done over the past few months.

In February 2012, ABIresearch released a report (“Personal Location Devices and Applications Market”) stating that GPS personal tracking devices and applications were forecasted to grow with a Compounded Annual Growth Rate (“CAGR”) of 40% with both markets breaking $1Billion in revenue in 2017.

Senior analyst Patrick Connolly stated, “The hardware market remained below 100,000 units in 2011. However, it is forecasted to reach 2.5 million units in 2017, with significant growth in elderly, health, and lone worker markets. Dedicated devices can offer significant benefits, with insurance and liability increasingly encouraging the use of approved equipment.” LBT’s PocketFinder device was specifically cited in Mr. Connolly’s research findings.

In May 2012, Kumu Puri, Senior Executive, Accenture’s Electronics & High-Tech Group shared that over the past few years Accenture has studied usage of technology by consumers to identify major trends that might assist their corporate clients. Their most recent survey of 19 different technologies across users in 10 countries revealed four major trends that they believe will be crucial over the next several years. They are:

·

Consumers are reaching a state of “hypermobility,” rapidly adopting mobile technologies and downloading applications that keep them connected anywhere, anytime.

·

Consumers are increasingly reaching into the network and modifying their behaviors as they rely on cloud services.

·

Consumers’ use of electronics is increasingly more dependent on the exploding number of applications now within their reach.

·

Emerging markets lead in usage and spending growth of many consumer technologies.

41

Puri went on to say that, “Consumers are adopting mobile technology so rapidly that the mobility trend is in hyper-drive. While consumers still have strong ownership and usage of desktop or laptop computers (90% surveyed own them), purchase intentions for computers are slowly declining. Simultaneously, smartphone and tablet PC ownership is rising steeply. More than half of consumers we surveyed own a smartphone – up 25 points in the past 12 months. This marks a growth rate of 89% over the previous year. One-third of respondents bought a smartphone in 2011, an increase of 15 percentage points compared with 2010. On a similar trajectory, ownership of tablets grew by 50% last year, from 8% of consumers owning them to 12%, according to our study. These survey findings paint a picture of consumers striving to get and stay connected wherever they are via mobile technologies, abundant app choices and a growing set of service alternatives from the cloud. The era of hypermobility has numerous implications for consumer electronics companies as they work to capture the greatest share of wallet among their target customers.”

We are aggressively moving LBT’s family of products and web-based features and functionality onto more functional mobile platforms to better meet the needs of this highly mobile society. We are seeing similar demands and requirements in families and in businesses. By taking advantage of the latest in GPS, GSM, and Internet technology, small and medium sized businesses are able to more effectively and efficiently manage their mobile assets and key human resources as well as to carefully monitor the shipping and delivery of high value assets. Although we are only actively selling devices in the US and Canada, we find that many people have purchased our devices while visiting the US and then returned home to activate. Global usage now comprises countries in much of Europe, Russia, Romania, Ukraine, Mexico, China, Hong Kong, Australia, and many countries in South America.

We receive customer feedback from vertical applications including outdoor enthusiasts, adult children of the elderly, elder care providers of patients with Alzheimer’s and dementia, special needs providers for those with disabilities, pet owners, and for the tracking and recovery of valuable property and luggage while traveling. Our PocketFinder device is only fifty millimeters in diameter (about 2 inches). It fits easily into a child’s pocket, into a backpack, or onto a belt. The PocketFinder People and PocketFinder Pets devices come with a form-fitting silicone pouch or a rugged ballistic nylon casing that can easily slide onto a belt or a pet’s collar.

We continue to tightly control our overhead and ensure that we have the right resources in place at the right time. We have a very talented senior management team that brings the right knowledge, skills and abilities to deliver world-class products and services. Distribution opportunities are being negotiated as we carefully analyze each market opportunity against the cost of entry, potential growth, economic value, and support capability metrics. We are developing a business model for international market opportunities and are in discussions with wireless carriers and/or distributors in multiple countries at this time. Key personnel have been brought in as independent contractors to supplement our existing team with customer, sales and business development skills. Our customer service center personnel have received consistently high feedback from customers who desired assistance and we offer support in English and Spanish.

Our Personal Locator Services. Our products are currently being sold through various brick-and-mortar and online retailers and through our website. We provide customer service and support in the United States through existing, award winning call centers owned by Affinitas. In the consumer market we are seeing multiple vertical market segments including the following:

●

Parents of young children (primarily 5 to 12 years of age) who seek the peace of mind of being able to know that their children are where they are supposed to be when they are supposed to be there;

●

Small, mid-sized, and enterprise class business owners;

●

First time family drivers or for added security in heavy snow states;

●

Elder care and special needs support and applications such as Autism, Down Syndrome, Dementia, and Alzheimer’s;

Our Intellectual Property Investment. We continue to invest in intellectual property that consists of apparatus patents and applications and system and method patents and applications. We have filed claims that cover many aspects of the PocketFinder, its operating system and user interface. We expanded and filed additional claims this fiscal year that cover new aspects of the PocketFinder People device, its operating system and user interface. Our intellectual property portfolio includes 33 issued US patents, 12 pending US patents, 7 pending foreign patents, 6 PCT filings, 17 registered trademarks and 4 Madrid protocol trademark cases.

42

We own the Internet domain name www.pocketfinder.com and www.locationbasedtech.com as well as the names of numerous other related domains that could have use in future business and vertical marketing initiatives and for Internet marketing purposes. Under current domain name registration practices, no one else can obtain an identical domain name, but someone might obtain a similar name, or the identical name with a different suffix, such as “.org,” or with a country designation. The regulation of domain names in the United States and in foreign countries is subject to change, and we could be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our domain names.

Our Target Markets and Marketing Strategy. We provide wireless location based solutions for global positioning products along with its proprietary “friendly user interface” software system. We deliver rugged, compact products with near real time location-based information over its proprietary server architecture. Our products optimize the way businesses and families stay connected with one another: for pet owners to know where their pets are on demand and also provide solutions for asset tracking – such as shipping of high value assets or LoadRack Tracker’s trucking solution for controlled temperature environments. We have the ability to add our customer’s existing location devices onto our superior location platform in order to simplify the customers need to manage all location-based devices through one easy tool.

PocketFinder and PocketFinder Vehicle devices are being sold in the United States and in Canada through the Apple Online Store and Apple Retail Stores. PocketFinder devices for Pets are available for purchase on our website. We are also working on several “white label” marketing opportunities. In addition, licensing opportunities are being explored on the international front.

Our marketing initiatives will include:

●

Licensing opportunities for the products in international areas or regions;

Our Growth Strategy. Our objective is to become a premier provider of personal and asset location services in the Location Based Services market. Our strategy is to provide high quality devices that meet the market’s requirements whether it is for business applications, for equipment and any other mobile asset, or for children, pets, or personal asset tracking (luggage, vehicles, boats, etc.). Key elements of our strategy include market education of this new GPS mobile application and:

●

A mass market retail price of under $150.00 for Personal Location devices (customized asset and trucking solutions with additional features and capabilities will be sold at a higher cost);

●

A basic monthly service fee in the U.S. for family applications of $12.95 and for most business applications under $20/month with multiple convenient access points (Smartphone and/or via the Internet);

●

Ease of use at the location interface point as well as with the device; and

●

Rugged design that meets the rigors of life and work.

43

Our Competition. Personal location and property tracking devices are beginning to significantly penetrate the marketplace. We believe this condition represents a tremendous opportunity as customers will be attracted in large numbers once the intrinsic value of such devices is recognized and mass market adoption begins.

Our competitors include, but are not limited to: Geospatial Platform Providers, Application Developers, Garmin’s GTU-10, Qualcomm’s Tagg, Lo-Jack, SpotLight, and commercial providers such as Fleetmatics,NetworkFleet, and Qualcomm. Some competitors may be better financed, or have greater marketing and scientific resources than we do.

In related markets, GPS devices have become widely used for automotive and marine applications where line-of-sight to GPS satellites is not a significant issue. Manufacturers such as Garmin, Navman, Magellan, TomTom, Pharos, NovAtel and DeLorne are finding a market interested in using these products for both business and leisure purposes. As a result, use of GPS technology in devices such as chart plotters, fitness and training devices, fish finders, laptop computers, and personal digital assistant (“PDA”) location devices are gaining significant market acceptance and commercialization. Prices range from $100 to several thousand dollars. We expect that increasing consumer demand in these markets will drive additional applications and lower price points.

Government Regulation. We are subject to federal, state and local laws and regulations applied to businesses generally as well as Federal Communications Commission, Internationale Canada (“IC”) and CE (European Economic Area) wireless device regulations and controls. We believe that we are in conformity with all applicable laws in all relevant jurisdictions. We are NOM and NYCE certified and ready to begin sales in Mexico. We do not believe that we are subject to any environmental laws and regulations of the United States and the states in which we operate.

Our Research and Development. We will continue to invest in ongoing research and development to enhance the size and performance of our existing products as well as to customize products to better fit specific vertical market needs and requirements. We will continue to work with our U.S. based manufacturer and several other entities that are conducting research on key aspects of the device itself (including expanded antennae capability, battery capacity, Iridium Satellite connectivity, and enhanced location reliability and accuracy) in an ongoing effort to provide the best quality product at the very best size and value in the market. We anticipate ongoing involvement with some level of developmental activity throughout the foreseeable future.

Employees and Outsourced Assistance. We have limited our use of contracted professionals who have been engaged in hardware and software development, early marketing and sales preparation, and preparation for customer service support. Mr. Scalisi, our Co-President and Chief Development Officer, Mr. Morse, our Co-President and Chief Executive Officer, and Mrs. Mejia, our Chief Operating Officer, and Mr. Gregory Gaines, our Chief Marketing and Sales Officer, currently devote 100% of their business time to our operations. Our CFO, Mr. Eric Fronk, is currently serving part-time. In addition to our new Board members, we have added several key contributors with customer service, general counsel/business development, and sales leadership experience. Remaining true to our “outsourced” model for growth and expansion, any large personnel increase will be accomplished through sales and customer support outsourced organizations contracted to provide respective services. The company will remain focused on our core competency of providing location devices and services.

Our Website. Our corporate websites, www.locationbasedtech.com and www.pocketfinder.com, provide a description of our corporate business along with our contact information including address, telephone number and e-mail address or product information and sales, respectively. Our PocketFinder website also provides prospective customers with relevant information about our products, pricing and payment options, pre-ordering capability, frequently asked questions. See www.locationbasedtech.com to access Business Solutions and our corporate investor relations information. Information contained on our websites is not a part of this report.

44

RESULTS OF OPERATIONS

For the three months ended November 30, 2012 as compared to the three months ended November 30, 2011.

Revenue. For the three months ended November 30, 2012, we generated $208,555 of net revenue as compared to $44,116 of net revenue for the three months ended November 30, 2011. Net revenue for the three months ended November 30, 2012, consisted of $127,856 from the sales of PocketFinder devices and $80,699 from monthly subscription service income.

Cost of Revenue. For the three months ended November 30, 2012, cost of revenue totaled $309,040 resulting in a negative gross margin of $100,485 or 48% as compared to a negative gross margin of $210,611 for the three months ended November 30, 2011. The negative gross margin was less favorable during the three months ended November 30, 2011, as we incurred labor cost overages and higher than anticipated bill of material components costs to accelerate our initial production run to meet our distributor delivery deadlines. We anticipate that our unit cost will be significantly lower as component costs decrease and as our production volumes grow.

Operating Expenses. For the three months ended November 30, 2012, our total operating expenses were $1,910,485 as compared to total operating expenses of $1,723,763 for the three months ended November 30, 2011. Operating expenses increased by $186,722 or 11% in 2012 from 2011. The increase in operating expenses is primarily attributed to the following fluctuations:

·

An $158,846 increase in general and administrative expenses to $607,360 for the three months ended November 30, 2012, as compared to $448,514 for the three months ended November 30, 2011. The increase in general and administrative expenses in 2012 as compared to 2011 is primarily due to increased advertising and marketing fees to market our products and increased computer expenses related to our website and development of the PocketFinder apps;

·

A $94,670 increase in officer compensation to $229,670 for the three months ended November 30, 2012, as compared to $135,000 for the three months ended November 30, 2011, which was due to the addition of our Chief Marketing and Sales Officer and part-time Chief Financial Officer. In addition, officer compensation related to the vesting of officer stock options amounted to $30,170 during the quarter ended November 30, 2012;

·

A $359,819 decrease in professional fees to $404,928 for the three months ended November 30, 2012, as compared to $764,747 for the three months ended November 30, 2011. For the three months ended November 30, 2011, there were significant legal fees related to the Gemini Master Fund, Ltd. loan defaults and to prepare the filing of our registration statement on Form S-1, whereby there were no such fees incurred during the three months ended November 30, 2012;

·

A $313,935 decrease in research and development to $42,364 for the three months ended November 30, 2012, as compared to $356,299 for the three months ended November 30, 2011, as a result of entering the final R&D phase for our PF886 product;

·

An $150,720 increase in salaries and wages to $150,720 for the three months ended November 30, 2012, whereby there were no such expenses for the three months ended November 30, 2011 due to the transition of six persons from consultant to employee status. In addition, compensation related to the vesting of employee stock options amounted to $51,685 during the quarter ended November 30, 2012; and

·

The recognition of an asset impairment on certain patents totaling $455,916 during the three months ended November 30, 2012; whereby, there was no such impairment recognized during the three months ended November 30, 2011.

45

Other Income/Expenses. For the three months ended November 30, 2012, we reported net other expenses totaling $1,413,734 that mainly consisted of net interest expense, financing costs, amortization of beneficial conversion feature, deferred financing costs, and loss on the change in the fair value of derivative liabilities as compared to net other expenses totaling $35,559 for the three months ended November 30, 2011. The $1,378,175 increase in other income and expenses is primarily due to the following:

·

A $65,030 increase in financing costs to $81,000 for the three months ended November 30, 2012, as compared to $15,970 for the three months ended November 30, 2011, primarily due to a $20,000 per month increase in the financing fee related to the personal guarantee for the line of credit;

·

A $61,233 increase in the amortization of beneficial conversion features on notes payable to $61,233 for the three months ended November 30, 2012, as there was no such amortization for the three months ended November 30, 2011;

·

A $79,465 increase in the amortization of deferred financing costs to $81,966 for the three months ended November 30, 2012, as compared to $2,501 for the three months ended November 30, 2011 as there were several promissory notes with financing costs entered into 2012 to be amortized over the life of the related debt;

·

The recognition of a loss due to the change in fair value of derivative liabilities totaling $1,144,647 during the three months ended November 30, 2012; whereby, there was no such derivative liabilities during the three months ended November 30, 2011; and

·

A $27,763 increase in interest expense to $44,872 for the three months ended November 30, 2012, as compared to $17,109 for the three months ended November 30, 2011 as there were approximately $2.5 million in notes payable at November 30, 2012 as compared to $750,000 of note payables at November 30, 2011.

Net Loss. For the three months ended November 30, 2012, we reported a net loss of $3,425,504 as compared to a net loss of $1,970,733 for the three months ended November 30, 2011, due to fluctuations in operating and other expenses as previously discussed.

LIQUIDITY AND CAPITAL RESOURCES

We had cash and cash equivalents of $130,435 as of November 30, 2012, as compared to $376,554 as of November 30, 2011.

Accounts receivable, net of allowance for doubtful accounts, totaled $91,799 as of November 30, 2012 as compared to $188,273 as of August 31, 2012. The majority of accounts receivable at November 30, 2012, consists of amounts due from Navarre/Apple and several other distributors and wholesalers.

Inventory totaled $3,227,748 as of November 30, 2012, as compared to $3,332,966 as of August 31, 2012 and consisted of $1,652,127 of device components, $1,634,094 of finished goods, net of a $58,473 inventory valuation reserve. Inventories totaling $1,350,000 which may not be realized within a 12-month period have been classified as long-term as of November 30, 2012 and August 31, 2012.

Prepaid expenses and other assets including deferred financing costs totaled $138,245 as of November 30, 2012, as compared to $127,581 as of August 31, 2012 and consisted of prepaid advisor retainers, insurance, commissions, license fees, and prepaid manufacturing costs.

As of November 30, 2012, the total of our property and equipment, less accumulated depreciation, was a net value of $234,134 compared to the net value of $123,982 for our property and equipment, less accumulated depreciation, as of August 31, 2012. The increase is due to machinery and equipment purchases during the three months ended November 30, 2012.

Other assets, consisted of patents and trademarks, net of amortization, and deposits. Deposits consisted of the security deposit for our office lease and amounted to $30,000 as of November 30, 2012 and August 31, 2012. Patents and trademarks, net of amortization, amounted to $775,900 as of November 30, 2012, as compared to $1,248,608 as of August 31, 2012. We periodically assess our patents and intellectual property for impairment and recorded a $445,916 impairment during the three months ended November 30, 2012.

46

Our total assets as of November 30, 2012, were $4,725,129 as compared to our total assets as of August 31, 2012, which were $5,487,298. The decrease in our total assets between the two periods was primarily due to fluctuations as previously discussed.

As of November 30, 2012, our accounts payable and accrued expenses were $1,595,256 as compared to $1,304,648 as of August 31, 2012.

As of November 30, 2012, deferred compensation was $1,092,408 as compared to $998,458 as of August 31, 2012 and consisted of amounts due to officers and employees for back pay.

As of November 30, 2012, deferred revenue was $11,376 as compared to $16,539 as of August 31, 2012 and consisted of prepaid services fees from monthly subscribers.

Convertible notes payable, net of the $122,050 beneficial conversion feature, amounted to $1,810,450 as of November 30, 2012, as compared to $1,878,770, net of the $193,694 beneficial conversion feature, as of August 31, 2012. The accrued interest on these convertible notes totaled $159,001 as of November 30, 2012, as compared to $163,093 as of August 31, 2012. The $1,969,451 of convertible promissory notes outstanding as of November 30, 2012 are short term, to be repaid out of future operating cash flow.

Related party convertible notes payable, net of the $30,411 beneficial conversion feature, amounted to $519,589 as of November 30, 2012. The accrued interest on these related party convertible notes totaled $10,767 as of November 30, 2012. The $550,000 of related party convertible promissory notes outstanding as of November 30, 2012 are short term, to be repaid out of future operating cash flow.

Derivative liabilities consist of embedded derivatives related to two outstanding short term JMJ convertible promissory notes payable. The fair value of the derivatives at the inception date (note payable default date) and as of November 30, 2012, amounted to $399,410 and $1,144,647, respectively.

On January 5, 2011, we entered into a Loan and Security Agreement with Silicon Valley Bank for a $1,000,000 line of credit originally expiring January 5, 2012. On August 24, 2011, the Loan and Security Agreement was amended by a First Amendment to Loan and Security Agreement to waive existing and pending defaults on loan covenants. On February 3, 2012, the Loan and Security Agreement was amended by a Second Amendment to Loan and Security Agreement to extend the maturity date to April 4, 2012 and to waive existing and pending defaults on loan covenants. On April 17, 2012, the Loan and Security Agreement was amended by a Third Amendment to Loan and Security Agreement to extend the maturity date to October 5, 2012 and to waive existing and pending defaults on loan covenants. On November 19, 2012, but effective as of October 5, 2012, the Loan and Security Agreement was amended by a Fourth Amendment to Loan and Security Agreement to extend the maturity date to October 5, 2013, to amend the interest rate and to waive existing and pending defaults on loan covenants. All other terms and conditions remain unchanged. Silicon Valley Bank maintains a security interest in all of our personal property. The outstanding balance on our line of credit was $1,000,000 as of November 30, 2012 and August 31, 2012. The related accrued interest totaled $8,583 and $5,597, as of November 30, 2012 and August 31, 2012, respectively.

Commitments as of November 30, 2012, amounted to $0 compared to $48,054 as of August 31, 2012, and consisted of the liability on losses from inventory purchase commitments recognized in August 2011.

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On December 1, 2010, in anticipation of entering into the Loan and Security Agreement with Silicon Valley Bank and in connection with loans that he had made to us, we entered into a Financing Agreement with Greggory S. Haugen under which, among other things, Mr. Haugen agreed to personally guaranty our obligations under the Loan and Security Agreement with Silicon Valley Bank. We are obligated to reimburse Mr. Haugen for any amounts, including interest, he pays under the guaranty. To compensate Mr. Haugen for his guaranty, we issued a warrant to him to purchase 3,600,000 shares of our common stock at an exercise price of $0.20 per share and we agreed to pay him $5,000 per month for so long as he has any obligation under the guaranty or he has not been reimbursed by us for any amounts paid by him under the guaranty. The $5,000 monthly fee is payable in cash or shares of our common stock at Mr. Haugen’s option. Under the Financing Agreement, we initially granted Mr. Haugen board observation rights that subsequently resulted in the appointment as lead director on the board, certain registration rights, and the right to approve our use of funds drawn under the Loan and Security Agreement. We also agreed to grant Mr. Haugen a security interest in all of our assets, junior only to the security interest of Silicon Valley Bank. In the event of an “Actionable Violation,” which is defined to include, among other things, our failure to maintain certain minimum net income levels, our failure to maintain a specified minimum account balance, or our failure to make any payment required under the Financing Agreement or any other agreement between Mr. Haugen and us, Mr. Haugen may, among other things, market our assets (including our intellectual property) and require us to sell such assets (subject to the approval of Silicon Valley Bank) with the proceeds to be applied to all amounts then due to Silicon Valley Bank and thereafter to any amounts due by us to Mr. Haugen under the Financing Agreement or any other agreement or instrument. In January 2011, we entered into the following agreements with Mr. Haugen: (i) a Security Agreement granting him a security interest in all of our assets to secure the reimbursement obligation under the Financing Agreement and every other debt, liability or obligation that we currently or at any time in the future owe to him and (ii) a related Intellectual Property Security Agreement granting him a security interest in all of our intellectual property. On April 18, 2012, but effective as of January 6, 2012, we entered into a Second Amendment to Loan Guarantor Agreement to provide an additional monthly compensation fee of $20,000 per month to act as guarantor and to extend the term of the original Financing Agreement until July 6, 2012. On August 30, 2012, we entered into a Third Amendment to Loan Guarantor Agreement to extend the terms of the original Financing Agreement and Second Amendment until January 6, 2013. On November 19, 2012, but effective as of October 5th 2012, we entered into the Fourth Amendment to the Loan Guarantor to extend the terms of the original Financing Agreement and the Fourth Amendment until October 5, 2013.

CASH REQUIREMENTS

We are an early stage wireless technology company focused on the marketing and sales of the PocketFinder family of products for retail distribution. Since our inception, we have generated significant losses. As of November 30, 2012, we had an accumulated deficit of $48,440,466 and we expect to incur continual losses until sometime in calendar year 2013.

We have a limited history of operations. To date, we have funded our operations primarily through personal loans by the founders and the private placement of our common stock and convertible notes.

As of November 30, 2012, we had $130,435 in cash and cash-equivalents. Over the next several quarters we expect to invest significant amounts of funds to develop our sales and marketing programs associated with the commercialization and launch of the PocketFinder family of products. We also expect to fund any additional inventory requirements and any necessary general overhead requirements.

We expect to have to obtain additional financing in the coming months for general and administrative expenses as well as purchasing and maintaining inventory, and for related purposes such as packaging, shipping, and direct sales and marketing costs. We are not able to estimate the amount of funds necessary as it will be determined by the volume represented by purchase orders from targeted distributors and direct end users.

Our funding requirements will depend on numerous factors, including:

●

Costs involved in production and manufacturing to fill purchase orders, software and interface customization for OEM partners, and the network necessary to commence the commercialization of the PocketFinder People and PocketFinder Pets devices;

●

The costs of outsourced manufacturing;

●

The costs of commercialization activities, including product marketing, sales and distribution, and customer service and support;

●

Our revenues, if any, from successful commercialization of the PocketFinder devices and the PocketFinder Network platform services; and

●

Other general and administrative expenses associated with running the day to day operations of our Company.

48

On December 10, 2012, we initiated a financing with ECPC II Capital, LLC (“ECPC”) which could net us up to $1,000,000 in capital. As of January 14, 2013, we have not received any investments from ECPC related to this financing and future capital distributions shall be made solely at ECPC’s discretion. Due to the uncertain nature of any future funding from ECPC, we may need to raise debt or equity capital this coming quarter. The sale of additional equity securities may result in additional dilution to our stockholders. The sale of debt securities could involve substantial operational and financial covenants that might inhibit our ability to follow our business plan. Additional financing may not be available in amounts or on terms acceptable to us or at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned commercialization activities, which could adversely affect our financial conditions and operating results.

Product Research and Development

We plan to continue to develop new products and to continue making enhancements to our existing products. We also continue to upgrade our device software and End-User Interface. Since October of 2012, there have been four firmware upgrades and we are currently using device firmware version 1.4.4. We are also evaluating a satellite-only GPS platform.

Plant and Equipment, Employees

We do not plan to purchase or sell any significant equipment, plant or properties during the foreseeable future. Our business operations are based on a strategic outsourcing model, thereby negating the need for significant amounts of plant and equipment, or significant numbers of employees. We currently have nine employees and do not anticipate hiring any significant number of additional employees during the next 12 months but will add a few selected and strategic employees.

Off-Balance Sheet Arrangements

As of November 30, 2012, we had no off-balance sheet arrangements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of November 30, 2012, due to the material weaknesses resulting from a lack of segregation of duties in our accounting department.

49

Changes in Internal Control Over Financial Reporting

There were no changes in internal controls over financial reporting that occurred during the three months ended November 30, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

50

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On December 6, 2012, the Company filed a lawsuit against Justin Keener d/b/a JMJ Financial (“JMJ”) relating to a promissory note entered into between the Company and JMJ on March 16, 2012. The Company sought a declaratory judgment that the note – including all principal and interest purportedly owed thereunder – violates applicable usury laws and thus is unenforceable. The Company also sought damages for alleged violations of Florida Statute 517.301. Thereafter on December 6, 2012, JMJ filed a Complaint against the Company alleging breach of contract for two promissory notes entered into between JMJ and the Company, the first on March 16, 2012 and the second on May 1, 2012.

On December 14, 2012, the Company filed an Amended Complaint against JMJ relating to three promissory notes entered into between the Company and JMJ. The first note was entered into on or around March 16, 2012 with a purported principal sum of $550,000. The second note was entered into on or around April 18th, 2012 with a purported principal sum of $620,000. The third note was entered into on or around May 1, 2012 with a purported principal sum of $550,000. The second note was paid off in full by the Company and the first and third notes are still outstanding. The Company is seeking a declaratory judgment that all of the Notes violate applicable usury laws and therefore, the entire outstanding debt purportedly owed, including all principal and interest, is unenforceable. The Company is also seeking to affirmatively recover compensatory damages for all moneys previously paid on the second note and all consequential damages arising from JMJ's prior conversions and short sales (and/or attempted short sales) of the Company’s stock. The Company is also seeking to invalidate all 1,956,522 warrants issued to JMJ pursuant to these transactions.

ITEM 1.A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Common Stock Issuances for Services Provided

On December 14, 2012, the Company issued 500,000 shares of common stock to a consultant for finder’s fees valued at $150,000 on the award date.

On December 18, 2012, the Company issued 62,069 shares of common stock in connection with a cashless exercise of 200,000 “Series T” warrants at an exercise price of $0.20 per share.

Exemption From Registration. The shares of Common Stock referenced in Part II, Item 2 above were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(2) of the Securities Act of 1933, as amended, (“Securities Act”), and/or Regulation D, as promulgated by the U.S. Securities and Exchange Commission under the Securities Act, based upon the following: (a) each of the persons to whom the shares of Common Stock were issued (each such person, an “Investor”) confirmed to the Company that it or he is an “accredited investor,” as defined in Rule 501 of Regulation D promulgated under the Securities Act and has such background, education and experience in financial and business matters as to be able to evaluate the merits and risks of an investment in the securities, (b) there was no public offering or general solicitation with respect to the offering of such shares, (c) each Investor was provided with certain disclosure materials and all other information requested with respect to the Company, (d) each Investor acknowledged that all securities being purchased were being purchased for investment intent and were “restricted securities” for purposes of the Securities Act, and agreed to transfer such securities only in a transaction registered under the Securities Act or exempt from registration under the Securities Act and (e) a legend has been, or will be, placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequently registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

51

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

52

ITEM 6. EXHIBITS

Exhibit

No.*

Document Description

3.1

Articles of Incorporation of Springbank Resources, Inc. (now known as Location Based Technologies, Inc.) (incorporated by reference from Exhibit 3.1 to the Registrant’s Registration Statement on Form SB-2 (Registration No. 333-139395) filed December 15, 2006).

3.1A

Amended Articles of Incorporation, dated October 20, 2008 (incorporated by reference from Exhibit 3.1A to the Registrant’s Form 10-KSB filed December 12, 2008).

3.2

Amended and Restated By-Laws of Location Based Technologies, Inc. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed January 4, 2008).

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. †

32.1

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. †

101.INS

XBRL Instance Document **

101.SCH

XBRL Taxonomy Extension Schema Document **

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document **

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document **

101.LAB

XBRL Taxonomy Extension Label Linkbase Document **

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document **

*

Management contract or compensatory plan

**

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections

†

Filed herewith

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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